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Deleveraging to continue in absence of capex

Better utilization awaited

* India Cements (ICEM)’s 4QFY21 EBITDA came in 4% below estimate due to higher costs. This was partly attributable to higher selling in the faraway markets of East and Central, which offset weaker demand in South – the company’s core market. Capacity utilization stood at just 57% in FY21.

* Net debt declined 15% YoY to INR30.0b in FY21 as the company repaid INR5.3b worth of debt on strong OCF and negligible capex.

* We raise our FY22E/FY23E EPS by 5%/17%, factoring in lower interest costs from deleveraging as the company continues to delay its capex plans. It trades at 10.7x FY23E EV/EBITDA, which factors in an improved earnings outlook and lower leverage, in our view. We maintain Neutral.

4Q EBITDA up 197% YoY, but misses estimate by 4%

* Revenue/EBITDA was up 26%/197% YoY to INR14.5b/INR2.0b (+11%/-4% v/s our estimate). Adj. PAT came in at INR716m (v/s loss of INR476m in 4QFY20) and beat our estimate by 20% – on the back of 43% YoY decline in finance cost.

* While volumes grew 13% YoY to 2.99mt (above estimate), EBITDA/t declined 26% QoQ to INR671, weighed by a 5% QoQ increase in cost/t to INR4,178. The cost increase was attributable to higher sales in the faraway markets of East and Central, higher freight cost (diesel price), and higher employee cost. Blended realization rose 11% YoY to INR4,848/t (in line with est).

* FY21 rev / EBITDA / adj. PAT stood at INR44.4b/INR8.1b/INR2.2b, with YoY change of -12%/+38%/+9.48x. On the other hand, the EBITDA margin stood at 18.2% v/s 11.6% in FY20. Volumes declined 19% YoY to 8.90mt, while EBITDA/t was up 71% YoY to INR906/t.

* FY21 OCF/capex/FCF stood at INR10.4b/INR1.3b/INR9.1b v/s INR4.1b/INR1.4b/INR2.8b in FY20.

* ICEM announced dividend of INR1/sh v/s INR0.6/sh in FY20.

Highlights from management commentary

* Utilization for 4QFY21/FY21 stood at 77%/57%. 4QFY21 sales volumes stood at 2.99mt (including 0.6mt sold in East), while FY21 sales volumes stood at 8.9mt (including 0.45mt of clinker sales).

* In FY21, the company shifted its focus to the cash-and-carry sales model and collected old outstanding receivables (INR1.8b), leading to better cash flows. It also utilized inventory worth INR2.4b.

* Prices are up INR10/bag QoQ and have remained stable in April and May. The management expects to see another round of price hikes at INR15/bag in the first week of June. The sales volume offtake in May is lower v/s April.

* The management has guided for power and fuel cost to remain flat QoQ in 1QFY22. Employee cost was higher in 4QFY21 and is expected to decline by INR110m/quarter on a recurring basis.

* Gross debt stood at INR30.0b (v/s INR35.3b in Mar’20) as the company repaid INR5.3b worth of debt. Repayment of INR6.0b is due in FY22, of which INR1.7b would be repaid in 1QFY22. Blended cost of debt stands at 8.86% p.a.

Valuation and view

* We expect ICEM’s market share loss in South to continue as key competitor Ramco’s new capacities get commissioned within six months.

* We expect net debt to decline further as the company continues to delay its capex plans. Net debt declined 15% YoY to INR30.0b in FY21.

* ICEM trades at 10.7x FY23E EV/EBITDA and USD77/t of EV/capacity. We value the stock at 10x FY23 EV/EBITDA to arrive at TP of INR185. We maintain Neutral.

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